Tomorrow night the President speaks to the nation. He will be looking back at 9/11 and assessing our progress since that terrible day five years ago. It will be the political equivalent of putting lipstick on a pig.
There is little question the nation is in a much weaker position today. We have spent trillions on security, taken tens of thousand of casualties and lost a great deal of power and prestige around the world, all in a period greater than the time from Pearl Harbor to the end of WW II - and what do we have to show for it? A Middle East in much greater turmoil today; Osama Bin Laden still alive and active, and terrorist attacks around the world increasing; as Peter Bergen outlines today in the Post, the Taliban resurgent in Afghanistan; Latin America much more hostile to America and our government; our military dangerously degraded, as has the capacity for the UN and other international institutions to take collective action to solve global challenges; global trade talks have collapsed; high oil prices which fueling instability, as Iran, Russia and Venezuela have used their new riches to export anti-Americanism, and our government still has no serious plans to end our dependence on foreign energy sources; as Katrina showed here at home we are still not ready, and DHS continues to be mired in extraordinary bureaucratic and operational troubles;
and finally, as the Senate Intelligence Committee Report confirmed on Friday, our President and his team are epic liers, willing to spin the world into war, serially torture and lie about it - and in the process have seriously degraded America's capacity to lead and pursue our interests around the world.
The Governing Party's response to 9/11 has been a disaster for America and our interests. They have made an extraordinary effort, and it has left us much worse off today. Simply put what they tried after 9/11 failed.
So, on this difficult anniversary, tomorrow should not be just a day to remember the fallen, but a day to recommit ourselves to find a new American strategy that brings greater peace and prosperity to the world; firmly re-commits our government to the formula that worked so well for America for so long - advocacy of democracy, free markets, liberty and the rule of law; and above all, I hope a day to inspire us to not accept our nation's current path, but to commit to do what is in our power, each of us, to restore the promise of this great nation we love and the world so desperately needs.
The disclosure undercuts continuing assertions by the Bush administration that such ties existed, and that they provided evidence of links between Iraq and Al Qaeda. The Republican-controlled committee, in a second report, also sharply criticized the administration for its reliance on the Iraqi National Congress during the prelude to the war in Iraq."
These stories and the report itself are well worth reading. And they are a shocking indictment of the carelessness and outright deceit of the Administration. It is very clear from this report that Bush and Cheney knowingly and repeatedly lied to the American people about the cause of the Iraq War. While this may not be news, this historic effort to mislead the American people and the world has now been documented and confirmed by the Congress - the Government - of the United States itself.
One new area that many will be looking into is how the Administration was duped by the Iraqi exiles, who exagerated and lied to help bring the US into Iraq. A small mention, but one certainly examining, is the claim that this group had been infiltrated by foreign intelligence services. Is the implication here that the Iranians helped dupe the US into attacking their worst enemy?
One of the main reasons Iran has become such a regional and even global threat today is the elimination of Saddam Hussein and the Sunni dominance of Iraq. Did the neo con cabal in the White House get taken for a ride - to the tune of hundreds of billions of dollars, tens of thousands of casualties, the loss of our prestige around the world - by the Iranians? Clearly this is a question that must be answered as soon as possible.
All in all this report recounts a sad and terrible chapter in our history.
Yesterday, David Brooks published a column in the New York Times called "Inequality Myths." The main message of the column is that "the meritocracy is working almost too well. It's rewarding people based on individual talents." Therefore inequality, which he denies is increasing when he says "workers over all are not getting a smaller slice of the pie ... [w]ages and benefits have made up roughly the same share of G.D.P. for 50 years," is not a serious issue, and has nothing to do with government policy or power relationships. His solution is to implement "human capital policies ... to help them get the intangible skills."
The statistics in his column are examined by, among others, Jared Bernstein and Dean Baker, and the case Brooks makes does not hold up to closer scrutiny. However, columns and arguments like Brooks' come up often so it's worth taking a closer look at what they tell us, and what they leave out.
Much of the assessment of the relative well-being of different classes of workers is based upon the comparison of means or, when large outliers are important, medians. For instance, there has been a lot of attention devoted recently to whether workers wages are keeping up with inflation and changes in productivity, and how the difference in income between classes has changed over time.
But, as discussed here by Yale economist Jacob Hacker, a focus on means and medians misses an important element of well-being, risk. For example, would you take a job offer for $10,000 more in salary if it raised the chances of becoming unemployed by 30%? Mean income is higher if the job is taken, but taking the job does not necessarily make you better off since it also increases economic risk (the decision depends upon tolerance for risk, among other things). Thus, the relatively small increases in compensation for workers in recent years must be balanced against increases in economic risk workers face when examining whether recent economic changes have made workers and their families better or worse off.
Today, workers face increased insecurity about their own and their employer's future as competition is heightened due to globalization. There has been a decline in external buffers such as pension coverage, health care coverage, and other social programs. Workers face increased variability of returns to education due to factors such as outsourcing, and the volatility of personal income has risen since 1975. Jacob Hacker estimates that income volatility has increased 88% from 1978-2000.
These are just a few of the changes causing workers to feel increased anxiety about future economic prospects. For more on the topic of economic risk from Jacob Hacker, a leader in this area, see "There goes the rug," "Economic risk has shifted from the government and corporations to workers and their families," "Social Security as Dramamine" [alt. link], and "The Real Issue Is Risk." The point is that with risk up substantially while compensation has stagnated, it's understandable why households report dissatisfaction with economic conditions. Those who focus solely on relative income, wages, living standards and other measures of mean or median performance miss an important component of the change in well-being, rising economic risk. So long as risk is ignored by some pundits, they are likely to remain mystified as to why typical workers report dissatisfaction with the Bush economy.
Today, a worker with a High School diploma earns on average $27,915, one with a college degree earns $51,206 and those with an advanced degree earn $74,602.
In a global economy that values ingenuity and technical know-how, a college degree is as important as a high school diploma was 50 years ago. Now we must make it as common.
This is what we did during my time as Governor of Indiana. In 1990, even in the depths of the last recession when the budget was tight, we created the 21st Century Scholars. What it says to every child whose family qualifies for the free or reduced lunch program – and who in 8th grade signs a written pledge to graduate from high school with passing grades, every one of those children is entitled to a full college scholarship to the public university of their choice, and those scholarships are fully transferable to the private university of their choice.
This program helped Indiana move from 40th in the country in the percentage of our kids who go on to higher education to 9th. We are literally lifting up more than a hundred thousand poor children and saying to them, if you believe in yourself, if you do your part, you can count on us to do our part too. They are better workers, better taxpayers, and better citizens. It’s good for us all. We should do that for every child in this country – each and every one.
We also need to help middle class families pay for college. Today the average student graduates with $19,300 student loans. This is a crisis that needs to be addressed. Over the last five years, average total tuition and fees have increased by 32 percent at private four-year colleges and universities, 57 percent at public four-year colleges and universities, and 33 percent at public two-year colleges. Parents can no longer meet this burden; many of them are faced with the daunting task of paying for college and taking care of their parents at the same time.
Government must step up and meet this challenge with them. By providing a $6,000 tax credit for college, we start to ease the burden on parents and students and make a college education an attainable goal and put them on the path to the American dream.
Education is the path to success for our children. To lead in the global economy America must produce the best and brightest the world has to offer. Companies should not have to recruit engineers in India because they cannot find enough in Indiana.
This is an important time for the cause of open markets and trade liberalization. The current round of global trade negotiations, the Doha Round, has collapsed; and we will soon learn whether the Administration and other leaders can restart them. As British Chancellor of the Exchequer Gordon Brown wrote recently, ” … the world economy faces an uncertain autumn … (from )not only the impact of terrorism and geopolitical uncertainty on our economies, but also a surge of protectionism.” Brown also yesterday called for the restarting of Doha at a meeting in Singapore in the coming months.
On this side of the Atlantic, Brown’s warning should have the distinct ring of truth. Pascal Lammy might have said this week that he is hopeful for a re-start, but there is little sign that the current administration will expend much political capital making this happen. More worryingly, The Times yesterday ran a timely piece arguing that the size of Bush’s trade deficit is a threat to growth not just in America, but for the rest of the world too.
In the wake of five years of accelerating globalization during which American wages have stalled and job creation has slowed, the national consensus to continue to liberalize trade –one that has held fast for more than fifty years -- is in danger of unraveling, To rebuild that consensus, we need a clear vision, strong leadership and a serious program to ensure that working Americans benefit as much from globalization as American businesses.
For the past half century, open trade has been a crucial part of the formula for global peace and prosperity; and America’s greatest leaders have maintained a broad, bipartisan consensus against protectionism. FDR and Harry Truman created the architecture for an open post-war system. JFK launched the modern series of multilateral trade talks. President Reagan began the Uruguay Round and the NAFTA negotiations – and President Clinton enacted both with bipartisan support.
President Bush has failed to show any comparable leadership through the Doha Round and his broader economic policies. Whatever we do, globalization is not going away or even slowing down. As FDR, Harry Truman, JFK and Bill Clinton all understood, liberal trade and globalization are ultimately progressive causes. Progressive need to rebuild the national consensus for trade and globalization with a new program that will ensure that all Americans can benefit from both.
Housing is one of the primary drivers of this economic expansion. Between construction, service and financial jobs, housing is responsible for about 30% of total jobs created during this expansion. Home equity loans have fueled consumer spending at a time when inflation has destroyed any income gains. And the increase in home prices has increased the "wealth effect" -- where people feel richer and therefore spend more.
The latest news from teh housing industry has been uniformly bad.
Consider the following facts which show year over year (from August 2005 to August 2006) changes in various housing statistics. (From EconBrowser
Builders’ sentiment Down 52.2%
New-home sales Down 21.6%
Purchase-mortgage applications Down 20.9%
Building permits Down 20.8%
Housing starts Down 13.3%
Existing-home sales Down 11.2%
Existing-home inventories Up 39.9%
New-home inventories Up 22.4%
These facts help to explain the following three new developments in housing.
Homebuilders are again reporting lower earnings. From The Street.com<
Homebuilders continue to cut their guidance amid a rapidly declining U.S. housing market, highlighted by growing inventories of homes for sale and increased cancellations from buyers.
In the past 24 hours, KB Home and Beazer Homes both slashed their full-year guidance, while Hovnanian's earnings fell sharply from a year ago.
It's also worth noting that these companies are so uncertain about the future of the housing market that they have not yet issued guidance for 2007.
One of the most shocking numbers from Hovnanian's earnings call was that the company's new orders fell 31% in the Western U.S., despite Hovnanian's community count increasing 24%.
KB Home also said preliminary numbers show a 43% drop in new orders for the third quarter, as cancellations rise and traffic declines at its communities.
Thursday morning, Beazer said it expects earnings of $8 to $8.50 a share for fiscal year 2006, down from its previous forecast of $9.25 to $9.75. The company will likely close a smaller number of homes in the fourth quarter than it previously projected, as net sales through the two months ended Aug. 31 dropped 49% from last year and cancellations of existing contracts rose to 50% from 26% a year ago.
There is nothing good in the previous news. First, homebuilders are cutting their forecasts. For most this is the second cut and for some it is the third. Secondly, no one wants to give earnings guidance. Earnings guidance isn’t required by any regulation. However, it is standard operating procedure on Wall Street. Not giving any guidance is a big sign of deep concern among homebuilders. Third, notice the large jump in cancellations. This isn’t just a few percentage points of statistical noise; it’s a really large increase.
The drop in sales is occurring despite massive increases in incentives.
David Seiders, chief economist for the National Association of Home Builders says 75 percent of the nation's builders and developers are offering incentives.
Those incentives range widely. "Developers will upgrade appliances, put in a Garland range or a Sub-Zero refrigerator," says Diane Saatchi, a vice president with the Corcoran Group who specializes in Hamptons properties.
One big developer, Elliott Homes, will landscape the backyard and upgrade your appliances, if you're ready to purchase one of their $439,950
homes at Rancho Cordova in California.
The Associated Press reported last week that a new San Diego condo development, Atria, was giving away plasma TVs and $5,000 home renovation gift certificates.
Some buyers, however, may just want money - and those deals abound.
"Price cuts are averaging 5 percent to 6 percent," Seiders says, "and 30 percent of all the large builders have cut prices in at least some of their developments by 10 percent or more.
Simply put, the increased use of incentives indicates demand is dropping. When 75% of market participants uses incentives, it’s a very strong indication demand is dropping in a big way.
Let’s turn to this announcement from the National Association of Realtors:
Home sales during the rest of the year will be lower than earlier projections as the market works its way through an inventory and price imbalance, according to the National Association of Realtors®.
David Lereah, NAR’s chief economist, said the most obvious effect in the near term will be with home prices. “A year ago we had record home sales and tight supply with buyers bidding over the asking price,” he said. “This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.”
“This is a normal pattern during a market correction, but home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms,” Lereah said. “Keep in mind that over time, home prices rise at the rate of inflation plus one-to-two percentage points – buyers in most of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned.”
First, this analyst is doing a fair amount of hedging in these statements. Homes aren’t just plentiful; inventories for new and existing homes are at records. Buyers aren’t just negotiating. Considering the levels of mortgage debt in the economy, buyers are weighted down in debt. They can afford to wait. The bottom line is the NAR is a trade organization; their analysts and spokespeople are paid to promote the industry. Things must be very bad for anyone in this organization to talk about price declines.
All of the housing news from the last month is bad. There is no way to spin this any other way. Inventories are at record levels. The US consumer is heavily indebted. Housing industry insiders are publicly expressing concern and aren’t issuing any earnings guidance for 2007. In short, the news indicates the US housing market could be in for a very big and ugly correction.
Globalization has changed the world and for the American economy to stand at the forefront of this transition - we must commit ourselves to an innovation economy that harnesses the power of the Americans ingenuity, creativity, and hard work.
We need to look through the prism of innovation in all that we do to ensure that we can be more rapid, more nimble, in terms of bringing new goods and services to the market, and when we do that we need to ensure there is stringent protection for our intellectual property rights abroad. All too often, that is not the case. We can succeed – and prosper – in the global economy, but if continue to allow our good ideas to be stolen by our competitors.
We cannot allow a situation to develop where, when we do our part through research and development, through education, through fiscal sanity, through increasing our own domestic savings, through becoming more competitive and innovative, the fruits of that labor of that American genius are stolen by those abroad through violating our intellectual property rights. That cannot be allowed to continue.
Today's global economic shifts present America with unparalleled opportunities and serious challenges. America stands as the country most poised to take advantage of the new global economy if we have the right leadership and stand up for the American worker as they have stood with us in making this country great. The first step in realizing their potential is offering an aggressive approach to stopping IP theft, while protecting American jobs and our national security.
If you want to see the worst of this President's economic track record, you only have to look backwards. In fact, the contrast between the last 30 years and the 30 years before that, from the end of the Second World War until the early 1970's is stark. In the golden year's of the Keynesian economy, real wages for hourly work doubled. And that is not including the advances from technology. In the last 30 years real wages have declined slightly, and that includes some of the advancements of technology. Measuring apples to apples, the difference is even worse for the present economy.
What made the New Deal, and the programs that followed, so successful? It wasn't a victory of party, nor of a specific policy, but a victory of a different kind of politics than we have seen for the last 30 years. At the root of America's rise was a partnership where government became the edge of the sword to enact the public good. It was this world leading labor force which made the creativity of American business over that time possible. The captains of industry could not have run the plays they did, without players who could execute on them. This advantage in work force remained, and paid huge dividends. It meant that labor could demand higher wages, it meant that companies had the confidence to build jumbo jets and government could plan and lay a vast interstate road network. Better workers meant better products and better government than other countries.
In the 1970's a series of monetary failures made Americans lose confidence in this kind of economy. Instead, we thought that cheap was the way to go. Don't invest, don't buy insurance and don't pay for work. And this runs afoul of what is, basically the first rule of economics: you get what you pay for, and you don't get what you don't pay for. As American business stopped paying for work, the incentive for the work force to get better declined. As we stopped introducing as many new technologies, the difference between America's labor force and the rest of the world eroded. For a while, we could get away with this, and coast on the national rents of the last decade of the Cold War.
But with the opening of the once Stalinist nations, with the change from a bi-polar world where almost half of the world's educated population was imprisoned in the Soviet system or its spin offs, to a multi-polar world, these national rents came to a final, and permanent end. The economic dislocation was painful, and prolonged. Reagan's good years of 1983-1990, "the fat years" as the Wall Street Journal likes to call them, were paid for with the six lean years of 1991-1996, and with the depth of the Great Recession of 1981-1982.
But if the last 30 years have been lost, then the last six have been positively wasted. The hard and painful political choices of the 1990's – which include George Herbert Walker Bush's raising taxes, and the bi-partisan effort to balance the budget, as well as the Clinton-Gore stewardship of the government – have been thrown away on one drunken spin of the wheel in Iraq. These last six years have seen the entire slender cushion that had been built up eaten away on four programs: Iraq, a drug company give away called "Medicare D", a vast series of tax breaks on upper incomes, and a huge and ineffective "homeland security" bureaucracy which couldn't read the memo "Katrina determined to strike in the US." Work hasn't been rewarded, instead, George W. Bush and Alan Greenspan put up a giant sign that said "housing market casino." Some people have made out like bandits on the housing market, but most people have not. The problem with houses is that we can't put them on ships and sell them to the Saudis, the Chinese or any of our other trading partners. All we can sell to them is the debt, which is now a chain around the necks of the American consumer. Incentives matter – the housing market was the only place to play. Stocks were bad, wages were flat, bonds were yielding at generational lows.
The answer begins, not with policy proposals, or laundry lists of programs to cut or enactd, but with a diagnosis of what is wrong. The numbers point to the symptoms: too much debt, too little investment, too much money spent on non-tradables like housing and not enough on exports, too much energy consumption, too little conservation, too low a return for those who work, too many tax breaks for those who shirk. It is not time for Democrats to pile into the wonkavator and cover the country with white papers, but to win elections.
Winning elections means telling the American people in plain language that we have work to do. It is not a time for commissions and committees, but commitment to direct and positive action to improve the fortunes of the broad majority of Americans now. It means telling the story of how America lifted itself form backwards poverty to forward prosperity, and challenging the electorate to make a clear choice between losing another generation, or becoming a generation found. It means telling Americans that while we are on the wrong track, we have not yet lost our way – that guided by our heads and hearts, that there is nothing wrong with America, that we cannot fix with our hands.
Its been a good week for debating the merits of globalization, and the Bush economic record. As Krugman writes in this morning's times, in a thoughtful response to "conservative economic commentators" otherwise known as David Brooks:
We can have an interesting discussion about questions like the role of unions in wage inequality, or the role of lax regulation in exploding C.E.O. pay, there is no question that the policies of the current majority party — a party that has held a much-needed increase in the minimum wage hostage to large tax cuts for giant estates — have relentlessly favored the interests of a tiny, wealthy minority against everyone else.
Yesterday we had a series of very stimulating posts on different aspects of globalization and policies of the current administration, not least Mark Thoma's two posts on inequality, and Bonddad on the housing crisis. Today we'll have some more, including Senator Evan Bayh on the importance of Intellectual Property, and our own Rob Shapiro on the need to work to rebuild the national consensus on trade. If you didn't catch it yesterday, have a look at our new economic report here.
"The Bush administration’s proposal to bring leading terrorism suspects before military tribunals met stiff resistance Thursday from key Republicans and top military lawyers who said some provisions would not withstand legal scrutiny or do enough to repair the nation’s tarnished reputation internationally."
It happened so fast. On Wednesday the President launches an aggressive effort to recast the national security/foreign policy conversation. On Thursday, leaders of his own Party and the Pentagon repudiate his new approach. From a governing standpoint, we should be pleased with has happened. From a political standpoint, it shows how extraordinarily out of touch and removed the White House has become from the rest of Washington, and of course, the country. Their political endgame this fall will be ferocious, hard-fought, well-funded and coordinated. But it is hard to spin away, and advertize away, the hard reality of a failed foreign policy and an economic policy that has benefited only a tiny few. The speedy crash of this new initiative should worry Republicans that there is no easy way out of the current mess they've made out of our government.
One interesting thing to watch next week is that the House Republicans, the most terrified group in Washington today, are standing firm with the President's already dead on arrival package. Will we have immigration reform redux, where the House R's take a narrow and base-driven position at odds with good governing and the Senate R's, leaving no room from compromise? Or will the President in this case have to bring all parties together, including the Democrats, and work out a deal to get something passed before the fall?